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DHX Media To Combine With Entertainment One For $1.59 Per DHX Share

www.dhxmedia.com
AIM and TSX: DHX
Highlights:
- Deal values DHX at $1.59 per share, offer inclusive of choice to opt
for 25% cash consideration
- Pro forma revenues of approximately C$665 million and EBITDA of
C$56 million
- Provides DHX scale to compete and to fully exploit its library of
2,200 half-hours of mainly children's content
- Key senior managers of DHX will remain with the business
- Post transaction, combined businesses to be listed on the TSX and
AIM
HALIFAX, Sept. 29 /CNW/ - DHX Media Ltd. (AIM and TSX: DHX) ("DHX"), a
leading international producer and distributor of mainly children's
entertainment content, today announces that it has entered into an agreement
to combine its business operations with those of Entertainment One Limited.
("E1" and together the "Enlarged Group") (AIM: ETO). The Proposed Transaction
has been recommended unanimously by the boards of directors of both DHX and E1
and values the total issued share capital of DHX at approximately C$68 million
(the "DHX Value"), representing C$1.59 per share. It is intended that the
combined company will be listed on both AIM and the Toronto Stock Exchange
("TSX").
DHX is an international producer and distributor of television
programming and interactive content based in Canada with operations in the UK,
focused on the children's and youth television market. DHX owns a library of
2,200 half-hours of mostly children's content library and to date has entered
into over 1,300 separate television license agreements with over 250 customers
worldwide.
E1 is a leading international entertainment content ownership and
distribution company with operations in Canada, the US, the UK, Holland and
Belgium. E1 focuses on the acquisition of film, television and music content
and exploits these rights in all media across its international distribution
network. The company has recently entered into a number of output agreements
with independent film producers, including Yari, THINKFilm and Summit
Entertainment covering both the Canadian and UK markets.
Michael Donovan, CEO of DHX, said:
"Joining forces with E1 represents the next logical stage in the
development of DHX. The Enlarged Group will provide DHX with access to the
U.S. and international home entertainment markets and will offer further
distribution capabilities for our growing children's library. The
consolidation occurring in the digital and media landscape increasingly
requires scale to compete and to exploit emerging opportunities. The Enlarged
Group will also offer DHX shareholders the opportunity to participate in one
of the largest fully integrated, independent content creation and distribution
companies in the world."
Darren Throop, currently CEO of E1, will be appointed as CEO of the
Enlarged Group. Key senior management of DHX will remain with the DHX business
which will form part of the Television division of the Enlarged Group,
overseen by Patrice Theroux, E1 President of Filmed Entertainment.
In the year ended June 30, 2008, as announced separately today, DHX
generated revenue of C$52.5 million and adjusted pro-forma EBITDA of
C$5.9 million and a net loss of $1.0 million. Based on the last audited
financial statements of E1 and DHX, and taking full account of acquisitions
made during the year, the Enlarged Group will have pro-forma revenue of
approximately (pnds stlg)350 million (C$665 million) and adjusted EBITDA of
approximately (pnds stlg)29 million (C$56 million).
The Proposed Transaction is expected to be completed by the end of
December 2008 and will be structured as a reverse takeover of E1 by DHX (the
"Proposed Transaction") for the purposes of Rule 14 of the AIM Rules for
Companies and will require approval of the shareholders of each of DHX and E1.
Following closing of the Proposed Transaction, the Enlarged Group will be
named Entertainment One.
Pursuant to the terms of the Proposed Transaction, E1 shareholders will
receive one newly issued common share of DHX for each E1 share held. DHX
shareholders will be offered the alternative of receiving either 0.9409 newly
issued common shares of DHX for each existing DHX share held or C$0.3975 in
cash and 0.7057 newly issued common shares of DHX for each existing DHX share
held.
If all DHX shareholders elect the cash and share alternative, upon
completion of the Proposed Transaction, DHX shareholders will own
approximately 17 per cent. of the Enlarged Group. If all DHX shareholders
elect the all share alternative, upon completion of the Proposed Transaction,
DHX shareholders will own approximately 21 per cent. of the Enlarged Group.
Notes to Editors:
DHX Media Ltd. (TSX and AIM: DHX) is a leading international producer and
distributor of television programming and interactive content with an emphasis
on children, family and youth markets. DHX shares trade on AIM and are listed
on the TSX, the Toronto Stock Exchange. DHX's production companies, Decode
Entertainment, Halifax Film and Studio B Productions, are the producers or
co-producers of 14 original television series and theatrical releases
currently commissioned for production and maintain a growing library of
2,200 half-hours of mostly children and youth-oriented television productions.
www.dhxmedia.com
Entertainment One Ltd. (AIM: ETO) AIM listed, E1's strategy is to build
the leading global independent entertainment content ownership and
distribution business that acquires films, television programs and music
content and exploits these rights in all media throughout the world.
Entertainment One has operations in Canada, the U.S, Holland, Belgium and the
UK. Entertainment One also owns Koch Entertainment, the largest independent
record label in North America and a leading independent distributor of music
and video in the United States. www.entertainmentonegroup.com
The release, publication or distribution of this announcement in
jurisdictions other than Canada and the UK may be restricted by law and
therefore any persons who are subject to the laws of any jurisdiction other
than Canada and the UK should inform themselves about, and observe, any
applicable requirements. This announcement has been prepared for the purpose
of complying with applicable Canadian law and the AIM Rules for Companies, and
the information disclosed may not be the same as that which would have been
disclosed if this announcement had been prepared in accordance with the laws
of jurisdictions other than Canada and the UK.
Any person (including, without limitation, any custodian, nominee and
trustee) who would, or otherwise intends to, or who may have a contractual or
legal obligation to, forward this announcement and/or any other related
document to any jurisdiction other than Canada and the UK should inform
themselves of, and observe, any applicable legal and regulatory requirements
of that jurisdiction.
For US securities law purposes, the transaction described in this
announcement will be made for the securities of a foreign company by means of
a scheme of arrangement under Cayman Islands law and a plan of arrangement
under Canadian law. The offer is subject to disclosure and procedural
requirements of a foreign country that are different from those which would
apply in the United States. It may be difficult for you to enforce your rights
and any claim you may have arising under United States federal securities
laws, since each of DHX and E1 is located in a foreign country, and some or
all of its respective officers and directors may be residents of a foreign
country. You may not be able to sue DHX or E1 or their respective officers or
directors in a foreign court for violations of US securities laws. It may be
difficult to compel DHX or E1 or their respective its affiliates to subject
themselves to a US court's judgment. This document has not been reviewed by
any federal or state securities commission or regulatory authority in the
United States, nor has any such commission or authority passed upon the
accuracy or adequacy of this document. Any representation to the contrary is
unlawful and may be a criminal offence.
Not for release, publication or distribution, in whole or in part, in or
into or from any other jurisdiction where to do so would constitute a
violation of the relevant laws of such jurisdiction.
Forward-Looking Statements
Certain statements herein relating to the Proposed Transaction are
forward-looking statements and represent DHX and E1's current intentions in
respect of future activities. These statements, in addressing future events
and conditions, involve inherent risks and uncertainties. Forward looking
statements can by identified by the use of the words "will", "expect", "seek,"
"anticipate," "believe," "plan," "estimate," "expect," and "intend" and
statements that an event or result "may," "will," "can," "should," "could," or
"might" occur or be achieved and other similar expressions. Forward-looking
statements involve significant risk, uncertainties and assumptions. Many
factors could cause actual results, performance or achievements to differ
materially from the results discussed or implied in the forward-looking
statements. These factors should be considered carefully and readers should
not place undue reliance on the forward-looking statements. Although the
forward-looking statements contained in this release are based upon what
management of DHX and E1 believes to be reasonable assumptions, DHX and E1
cannot assure readers that actual results will be consistent with these
forward-looking statements. These forward-looking statements are made as of
the date of this release and DHX and E1 assumes no obligation to update or
revise them to reflect new events or circumstances, except as required by law.
Many factors could cause the actual results, performance or achievements of
DHX and E1 to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements, including: general economic and market segment conditions,
competitor activity, product capability and acceptance, international risk and
currency exchange rates and technology changes. More specific risks include
that the merged entity will not be able to realize some or all of the expected
synergies due to incompatibilities in the merging businesses, the inability of
management to bring about such synergies or a changing business environment
rendering such synergies inadvisable or uneconomical. After integrating the
businesses the suite of service offerings may not perform as expected if
shifting demand moves in a direction away from the expected business model of
the merged entity, if competitors are able to take market share away from the
merged entity or if changing technology adversely impacts the merged
businesses. In addition, while DHX and E1 expects their partners to continue
and expand their relationship with the merged entity, there can be no
assurance that such relationships will continue as expected.
Transaction Summary
The terms of the Proposed Transaction are governed by an Arrangement
Agreement between E1 and DHX (the "Arrangement Agreement").
The Proposed Transaction will be implemented by way of a scheme of
arrangement under Cayman Islands law (in relation to E1 shareholders) (the "E1
Scheme of Arrangement") and a plan of arrangement under Canadian federal law
(in relation to DHX shareholders) (the "CBCA Plan"). Notices of the
shareholder meetings and a joint proxy circular, together with the Admission
Document prepared in accordance with Rule 14 of the AIM Rules for Companies,
will be sent to the respective shareholders of DHX and E1 in due course.
Details of the proposed shareholder resolutions will be set out in the
respective notices and joint proxy circular. It is expected that the notices
will be mailed before the end of November 2008 and the Proposed Transaction is
expected to be completed by the end of December 2008. Holders of DHX common
shares that fail to make an election prior to the designated closing date of
the Proposed Transaction will be deemed to have elected to exchange their
common shares pursuant to the All Share Alternative.
Pursuant to the Arrangement Agreement, shareholders of DHX will have the
opportunity to elect either an "All Share Alternative" or a "Cash and Share
Alternative" in respect of all of their DHX common shares. Those DHX
shareholders who elect the All Share Alternative will receive 0.9409 of a new
common share of DHX in exchange for each old common share held, while those
shareholders who elect the Cash and Share Alternative will receive C$0.3975 in
cash and 0.7057 of a new common share of DHX in exchange for each old common
share held. Holders of E1 ordinary shares will receive one common share of DHX
for each E1 ordinary share held.
Following closing of the Proposed Transaction, DHX will be the surviving
parent corporation and will be renamed "Entertainment One". It is intended
that the new common shares of DHX to be issued pursuant to the Proposed
Transaction will be listed on both AIM and the Toronto Stock Exchange.
Pursuant to the CBCA Plan, all outstanding options and share purchase
warrants to acquire common shares of DHX will be exchanged for new options,
warrants and rights to acquire 0.9409 new common shares of DHX for each common
share previously subject to such options and share purchase warrants, and
otherwise having the same respective terms. All outstanding options, share
purchase warrants and other rights to acquire ordinary shares of E1 will,
subject to receipt of the consent of the holders thereof, be exchanged for new
options, warrants and rights to acquire the same number of new common shares
of DHX having the same respective terms.
Immediately following closing of the Proposed Transaction, assuming that:
- all DHX shareholders elect the All Share Alternative, approximately
40,254,842 new common shares will be issued and there will be
187,239,753 new common shares of DHX outstanding; and
- all DHX shareholders elect the Cash and Share Alternative,
approximately 30,192,201 new common shares will be issued and there
will be 177,177,112 common shares outstanding in DHX.
The closing of the Proposed Transaction is subject to certain conditions
specified in the Arrangement Agreement, including:
- receipt of interim and final orders in respect of the E1 Scheme of
Arrangement in the Cayman Islands by the Grand Court of the Cayman
Islands and the CBCA Plan by the Ontario Superior Court of Justice;
- receipt of approvals of the Proposed Transaction by the
shareholders of both E1 and DHX at special meetings to be convened
following receipt of the above-mentioned interim orders;
- receipt by E1 and DHX of consents of their respective significant
lenders;
- receipt of approval of the TSX to the Proposed Transaction; and
- re-admission of the new common shares of the Enlarged Group to
trading on AIM.
The CBCA Plan will require the approval of at least 66 2/3 per cent of
the votes cast by DHX shareholders at the DHX meeting. The E1 Scheme of
Arrangement will require (A) the approval the E1 Scheme of Arrangement by (i)
75 per cent of the holders of E1 ordinary shares present and voting, whether
in person or proxy, at the E1 meeting, and (ii) 75 per cent of the holders of
E1 Class S shares present and voting, whether in person or proxy, at the E1
meeting and (B) the approval of the de-listing of E1 ordinary shares from AIM
by 75 per cent of holders of E1 ordinary shares and 75% of the E1 Class S
shares, in each case present and voting, whether in person or proxy, at the E1
meeting.
E1 has received voting support agreements from certain members of E1
senior management and Marwyn Neptune Fund LP to vote in favour of the Proposed
Transaction at the E1 shareholder meeting representing in aggregate
37,470,316 ordinary shares and approximately 28.8 per cent. of E1's total
issued ordinary share capital. In addition, holders of Class S shares have
agreed to provide undertakings to vote in favour of the Proposed Transaction
at the Entertainment One shareholder meeting, representing in aggregate
16,899,762 Class S Shares and 100 per cent. of the Entertainment One's total
issued Class S Shares. DHX has received voting support agreements from certain
members of DHX senior management to vote in favour of the Proposed Transaction
at the DHX shareholder meeting representing in aggregate 14,368,852 common
shares and approximately 33.6 per cent of DHX's outstanding common shares.
GMP Securities L.P., financial advisor to DHX, has provided to DHX's
board of directors a fairness opinion that concludes that the Proposed
Transaction is fair to DHX shareholders from a financial point of view. DHX's
board of directors, based on the recommendation of an independent committee of
such board, has determined that the Proposed Transaction is in the best
interests of DHX and its shareholders.
Certain management and other shareholders of DHX and E1 have entered into
lock-in undertakings in connection with the Proposed Transaction, and will,
subject to certain exceptions or to the consent of the Enlarged Group, be
restricted from selling shares held in the Enlarged Group for twelve months
from closing.
A break fee equal to approximately 3.5 per cent of the DHX Value or
C$2.38 million may be payable by either party in certain instances, including
in the event that DHX enters into an agreement in respect of a Superior
Proposal to acquire DHX (as defined in the Arrangement Agreement) or E1 enters
into an agreement in respect of an Acquisition Proposal in respect of E1 (as
defined in the Arrangement Agreement).
%SEDAR: 00023380E